The rise and risk of ‘greenwashing’

There is no legal definition of the term greenwashing. Traditionally greenwashing is where an entity presents false or misleading claims about its environmental sustainability. It encompasses claims relating to any of the environmental aspects and impacts of a business (including natural resource use, biodiversity impacts, energy use, climate change etc).

Key takeaways

1. The Senate has launched an inquiry into greenwashing, with submissions invited until 8 June 2023, and the final report due by 5 December 2023. A likely outcome of the inquiry will be legislative changes to protect consumers and changes to advertising standards.
    
2. There has been an increase in greenwashing litigation and regulatory enforcement, with corporate regulators ASIC and the ACCC making greenwashing activities an enforcement priority for 2023.
    
3. ASIC has recently acted against several companies for misleading environmental and sustainability claims. Also, the ACCC reported in March 2023 that it will investigate several businesses for potential greenwashing following an internet sweep that identified that most companies investigated had made concerning claims about their environmental credentials. The ACCC is also investigating complaints made by third parties in relation to greenwashing claims against two airlines.
    
4. The ACCC intends to produce updated economy-wide guidance material and targeted guidance for specific sectors, as well as engage directly with businesses and industry associations to improve compliance with the Australian Consumer Law (ACL) in relation to greenwashing.
    
5. The risks associated with green claims arise mainly in the context of prohibitions in the Corporations Act 2001 (Cth) on carrying out misleading and deceptive conduct and making false or misleading statements, and similar prohibitions in the Competition and Consumer Act 2010 (Cth) (CCA) and ACL. Directors and officers should take precautions to avoid greenwashing.
    
6. Companies should adopt a cautious approach to consumer facing content to mitigate the risk of greenwashing claims, especially where statements or depictions relate to matters of sustainability, environmental impact etc. Guidance materials such as the ASIC’s Information Sheet 271 (INFO 271) and the ACCC’s Green marketing and the Australian Consumer Law should be followed where appropriate.
    
7. Companies should consider undertaking an audit of current and recent past consumer facing content to identify whether retractions or clarifications, or other interventions, are required.
    
8. Companies should ensure that it has evidence to support sustainability statements. Where new or better evidence is available, statements should be updated (where necessary).
    
9. Companies should seek legal advice if there are any concerns about potential greenwashing in statements and required disclosures before these are given, and in responding to any complaints or regulatory investigations.
    
10. Given the rising prominence of greenwashing, and regulators stepping up to tackle this problem companies should monitor developments (such as guidance, requirements and actions of regulators, and any relevant litigation).

Senate inquiry

On 29 March 2023, the Senate referred an inquiry into greenwashing for inquiry and report by 5 December 2023. The terms of reference for the inquiry are:

• An inquiry into greenwashing, with particular reference to:
   
  • the environmental and sustainability claims made by companies in industries including energy, vehicles, household products and appliances, food and drink packaging, cosmetics, clothing and footwear;
     
  • the impact of misleading environmental and sustainability claims on consumers;
     
  • domestic and international examples of regulating companies’ environmental and sustainability claims;
     
  • advertising standards in relation to environmental and sustainability claims;
     
  • legislative options to protect consumers from green washing in Australia; and
     
  • any other related matters.^[1] 

Submissions to the Senate Inquiry can be made up until 8 June 2023.

The announcement of the Senate Inquiry is the culmination of a growing trend to interrogate and clamp down on claims of greenwashing that has gripped the Australian and global consumer markets.

What is greenwashing

There is no legal definition of the term greenwashing. Traditionally greenwashing is where an entity presents false or misleading claims about its environmental sustainability. It encompasses claims relating to any of the environmental aspects and impacts of a business (including natural resource use, biodiversity impacts, energy use, climate change etc).

Interestingly, ASIC has indicated an even broader view of greenwashing, saying that greenwashing occurs where an entity “over represents the extent to which their practices are environmentally friendly, sustainable or ethical”.^[2] This broad view of greenwashing includes the traditional environmental concepts associated with that term but also extends to conduct that speaks to the ethics of a business, thus incorporating the notion of ‘bluewashing’ - where an entity over represents its commitment to responsible social practices.

Why is it important

Investors and consumers of products and services are placing increasing value in their decision making on the green credentials of companies they invest in, and the products and services they consume.

Globally, businesses are eager to seize a share of the ESG investment/consumption market. Promoting their green credentials is the clear and most direct way to do so. This results in a push to adopt green language like “net-zero”, “carbon neutral”, “sustainable” etc, which has seemingly led to a proliferation of unsupported or dubious green claims being made both intentionally and unintentionally. These false claims undermine the foundation of ESG investing and consumption by eroding trust and confidence in the market and thereby reducing the attractiveness of businesses engaging in real green practices.

Recently, however, there is a marked increase in the amount of greenwashing litigation and regulatory enforcement, both globally and in Australia. In Australia, this has not required specific new legislation. The risks arising in relation to making green claims in Australia arise mainly in the context of:

• prohibitions in the Corporations Act 2001 (Cth) on carrying out misleading and deceptive conduct and making false or misleading statements; and
   
• similar prohibitions in the Competition and Consumer Act 2010 (Cth) (CCA) and Australian Consumer Law.

Latest developments and trends for 2023

Corporate regulators ASIC and ACCC announced that greenwashing activities are an enforcement priority for 2023.

Both ASIC and the ACCC have been active in the last 6 months undertaking regulatory sweeps to identify prohibited conduct, issuing enforcements notices relating to claims of greenwashing, and even initiating civil proceedings against companies. Some examples are below:

Tlou Energy Limited

In October 2022, Tlou paid $53,280 in relation to 4 infringement notices issued to it by ASIC. ASIC’s action was in relation to statements and images contained in two ASX announcements made by Tlou which claimed that:

• electricity produced by Tlou would be carbon neutral;
   
• Tlou had environmental approval and the capability to generate certain quantities of electricity from solar power;
   
• Tlou’s gas-to-power project would be ‘low emissions’; and
   
• Tlou was equally concerned with producing ‘clean energy’ using renewable sources as it was with developing its gas-to-power project.

ASIC was concerned that Tlou either did not have a reasonable basis to make the representations, or that the representations were factually incorrect.

Vanguard Investments Australia Ltd 

In December 2022, Vanguard paid $39,960 in relation to 3 infringement notices issued to it by ASIC. ASIC’s action was in relation to Product Disclosure Statements for the Vanguard International Shares Select Exclusions Index Funds (the Vanguard Funds), which ASIC viewed as having the potential to mislead the public by overstating an exclusion, otherwise known as an investment screen, claimed to prevent investment in companies involved in significant tobacco sales. The Vanguard Funds were structured to exclude certain investments in tobacco, however, while this screen applied to exclude manufacturers of cigarettes and other tobacco products, it did not exclude companies involved in the sale of tobacco products.

Diversa Trustees Limited

In December 2022, Diversa paid $13,320 in relation to an infringement notice issued to it by ASIC.  ASIC’s action was in relation to Diversa’s superannuation product Cruelty Free Super (CFS) and statements on CFS’ website which ASIC viewed as having been false or misleading by overstating exclusions, otherwise known as investment screens. In these statements, CFS claimed to prevent investment in companies involved in ‘polluting and carbon intensive activities’, ‘financing or support of activities which cause environmental and social harm’ and ‘poor corporate governance’.

While some investment screens were applied by CFS, they were more specific and implemented on a more limited basis than CFS’ website had suggested.

Black Mountain Energy Limited (BME)

In January 2023, BME paid $39,960 in relation to 3 infringement notices issued to it by ASIC. ASIC’s action was in relation to statements contained in three ASX announcements made by BME which claimed that:

• BME was creating a natural gas development project with ‘net-zero carbon emissions’, and
   
• the greenhouse gas emissions associated with Project Valhalla would be net zero.

ASIC was concerned that BME either did not have a reasonable basis to make the representations, or that the representations were factually incorrect.

Mercer Superannuation (Australia) Limited (Mercer)

On 28 February 2023, ASIC announced that it has filed proceedings in the Federal Court against Mercer in relation to alleged statements on its website about seven ‘Sustainable Plus’ investment options offered by the Mercer Super Trust, of which Mercer is the trustee. These statements marketed the Sustainable Plus options as suitable for members who ‘are deeply committed to sustainability’ because they excluded investments in companies involved in carbon intensive fossil fuels like thermal coal. Exclusions were also stated to apply to companies involved in alcohol production and gambling.

However, ASIC alleges members who took up the Sustainable Plus options had investments in companies involved in industries the website statements said were excluded. For example:

• 15 companies involved in the extraction or sale of carbon intensive fossil fuels (including AGL Energy Ltd, BHP Group Ltd, Glencore PLC and Whitehaven Coal Ltd);
   
• 15 companies involved in the production of alcohol (including Budweiser Brewing Company APAC Ltd, Carlsberg AS, Heineken Holding NV and Treasury Wine Estates Ltd); and
   
• 19 companies involved in gambling (including Aristocrat Leisure Limited, Caesar’s Entertainment Inc, Crown Resorts Limited and Tabcorp Holdings Limited).

In doing so, ASIC alleges Mercer made false and misleading statements and engaged in conduct that could mislead the public.

ASIC is seeking declarations and pecuniary penalties from the Court. ASIC also seeks injunctions preventing Mercer from continuing to make any of the alleged misleading statements on its website, and orders requiring Mercer to publicise any contraventions found by the court.

ACCC internet sweep

On 2 March 2023, ACCC reported^[3]  that it will be investigating several businesses for potential greenwashing, following an internet sweep commenced in October 2022. The ACCC reported that of the 247 businesses reviewed during the sweep, 57 per cent were identified as having made concerning claims about their environmental credentials.^[4]

The key concerns identified by the ACCC in the sweep were:

• using vague or unclear environmental claims to described products, such as ‘green’, ‘kind to the planet’, ‘eco-friendly’, ‘responsible’ or ‘sustainable’
   
• using absolute claims, such as ‘100% plastics free’ or ‘100% recyclable’
   
• using comparisons that did not provide useful information to consumers to allow a proper assessment of the claims being made
   
• exaggerating sustainability benefits or omitting relevant information regarding negative attributes
   
• using third-party certifications symbols in a confusing way
   
• setting environmental goals and making aspirational statements without clear plans for how these will be achieved.

The ACCC has statutory powers to obtain from company’s information, documents, and evidence in relation to matters which may constitute a contravention of the CCA. The ACCC plans to use those powers to enable it to undertake detailed investigations of environmental claims it finds concerning. The ACCC also indicated that it will be:

• producing updated economy-wide guidance material, as well as targeted guidance for specific sectors; and
   
• engage directly with businesses and industry associations to improve compliance with the ACL

Following the release of the ACCC’s report, two complaints have been lodged against airlines relating to alleged greenwashing practices.

On 3 March 2023, Greenpeace, represented by EDO, lodged a greenwashing claim with the ACCC against Toyota. The claim alleges that Toyota’s advertising gives the false impression that the company is leading the transition to clean cars, but the truth is Toyota is not leading the transition but is acting globally to block the take-up of electric vehicles. Toyota could face fines of up to $50 million.^[5]

On 23 March 2023, Flight Free Australia, also represented by EDO, lodged a greenwashing claim with the ACCC against Etihad Airways. The claim alleges that certain Etihad advertisements implied that flying with Etihad does not have a significant environmental impact and that Etihad either intends or reasonably expects to achieve net zero emissions by 2050. Flight Free Australia alleges that Etihad has no credible path to net zero, that its own sustainability report forecasts an increase in carbon dioxide emissions to 2026 due to increased services, while its emissions reduction initiatives are un-modelled and rely on speculative technology and offsetting. 

Recommendations

Companies should:

• adopt a cautious approach to consumer facing content. Policies regarding use of ‘green’ words or visuals should be developed considering global legal best practice and considering guidance materials such as the ASIC’s Information Sheet 271 (INFO 271) and the ACCC’s Green marketing and the Australian Consumer Law, where appropriate.
   
• ensure that it has evidence to support sustainability statements. Where new or better evidence is available, statements should be updated (where necessary).
   
• consider undertaking an audit of current and recent past consumer facing content to identify whether retractions or clarifications, or other interventions, are required.
   
• seek legal advice if there are any concerns about potential greenwashing in statements and required disclosures before these are given, and in responding to any complaints or regulatory investigations.
   
• monitor developments (such as guidance, requirements and actions of regulators, and any relevant litigation) given the rising prominence of greenwashing, and regulators stepping up to tackle this problem.

For further thought leadership on greenwashing and climate related risks and to find out how Clyde & Co can help you in this regard, please visit our Resilience Hub and Climate Change Risk Practice.

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[1] https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Environment_and_Communications/Greenwashing 

[2] C Armour, What is "greenwashing" and what are its potential threats? in ASIC’s Company Director, July 2021, available at https://asic.gov.au/about-asic/news-centre/articles/what-is-greenwashing-and-what-are-its-potential-threats/. 

[3] https://www.accc.gov.au/media-release/accc-%E2%80%98greenwashing%E2%80%99-internet-sweep-unearths-widespread-concerning-claims 

[4] ACCC, Greenwashing by businesses in Australia: Findings of the ACCC’s internet sweep of environmental claims, March 2023 accessible at https://www.accc.gov.au/system/files/Greenwashing%20by%20businesses%20in%20Australia.pdf

[5] https://www.greenpeace.org.au/news/greenpeace-files-accc-greenwashing-complaint-against-toyota/